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# Technological improvements and reduced equipment costs have

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Technological improvements and reduced equipment costs have [#permalink]

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16 Feb 2006, 21:28
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Technological improvements and reduced equipment costs have made converting solar energy directly into
electricity far more cost-efficient in the last decade. However, the threshold of economic viability for solar power
(that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more
economical than new oil-fired power plants) is unchanged at thirty-five dollars.
Which of the following, if true, does most to help explain why the increased cost-efficiency of solar power has
not decreased its threshold of economic viability?
(A) The cost of oil has fallen dramatically.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs
for that equipment.
(C) Technological changes have increased the efficiency of oil-fired power plants.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically
viable.

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Re: Technological improvements and reduced equipment costs have [#permalink]

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11 Jul 2013, 01:19
7
KUDOS
Expert's post
nikhil.jones.s wrote:
plumber250 wrote:
Hi Nikhil,

No - we're not assuming anything else when we see the answer.

Think about it in any business context - if you improve your efficiency, the thing that counteracts that is your competitor improving its. Meaning you get no where...

This logically works here, and makes C correct.

Does that make sense

Hey, thank you for the explanation. But I was actually wondering if you could explain to me why is A wrong? On what grounds do we consider A incorrect or is it just about picking which is more relevant from A and C?
At the same time, can you tell me where am I going wrong here? In my eyes, a decrease in Oil price would also keep the economic viability unchanged right?
Moreover, In C ain't we assuming that although efficiency of the plants has increased, the cost of raw materials or production is still the same? Doesn't this assumption deem the answer incorrect?

No, it is not about picking the more relevant option. A is incorrect. Here is the explanation as I gave on another thread of this question:

It is a good tricky CR question. People with a quantitative bent of mind would love it, I am sure.
Let me put some numbers here to make it clearer. You need the numbers to understand that a paradox exists. Once you do understand that, resolving it is very simple.

Sunlight is free. Infra needed to convert it to electricity is expensive. Say for every one unit of electricity, you need to spend \$50 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. Say for every one unit of electricity, you need to spend \$40 in an oil fired power plant. Say, the split here is \$25 + \$15 (\$25 is the cost of oil used and \$15 is cost of infra for a unit of electricity).

Oil based electricity is cheaper. If the cost of oil rises by \$10 to \$35, solar power will become viable.
This \$35 = the threshold of economic viability for solar power = the price per barrel to which oil would have to rise (mind you, this isn't the actual price of oil)

What happens if you need to spend only \$45 in a solar power plant for a unit of electricity? Would you expect 'the threshold of economic viability for solar power' to go to 30? Yes! Now, for solar viability, 'cost of oil + cost of infra in oil power plant' should be only \$45. 'Cost of infra in oil power plant' = 15 so we need the oil to go up to \$30 only. That will make solar power plants viable. So the threshold of economic viability should decrease.

But the threshold of economic viability for solar power is still \$35! It doesn't decrease. That is the paradox! How do you resolve it? By saying that 'Cost of infra in oil power plant' has also gone down by \$5 and is only \$10 now.

This is what the scene is like now:

Sunlight is free. Infra needed to convert it to electricity is expensive. For every one unit of electricity, you need to spend \$45 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. For every one unit of electricity, you need to spend \$35 in an oil fired power plant. The split now is \$25 + \$10 (\$25 is the cost of oil used and \$10 is cost of infra for a unit of electricity).

You still need the oil price to go up to \$35 so that cost of electricity generation in oil power plant is also \$45. So you explained the paradox by saying that "Technological changes have increased the efficiency of oil-fired power plants." So, option (C) is correct.

If you think about it now, the actual price of the oil has nothing to do with 'the threshold of economic viability for solar power'. This threshold is \$35 so you need the oil to go up to \$35. Whether the actual price of oil is \$10 or \$15 or \$20, it doesn't matter. It still needs to go up to \$35 for solar viability. So option (A) is incorrect.
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Re: Technological improvements and reduced equipment costs have [#permalink]

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10 Jul 2013, 09:02
2
KUDOS
Hi Nikhil,

No - we're not assuming anything else when we see the answer.

Think about it in any business context - if you improve your efficiency, the thing that counteracts that is your competitor improving its. Meaning you get no where...

This logically works here, and makes C correct.

Does that make sense
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18 Feb 2006, 20:00
1
KUDOS
Edit: Wow, I suck. Trying again, (A) is apparently the "gotcha" answer here...

I have to go with (C) now as the passage talks about energy efficiency and economic viability, not energy cost.

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Re: Technological improvements and reduced equipment costs have [#permalink]

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24 Aug 2014, 23:11
1
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Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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16 Feb 2006, 21:35
Only (C) makes any logical sense to me. But then again, I could be misreading the question

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16 Feb 2006, 22:32
Yeah, only C seems to support the arguement.

- Vipin

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17 Feb 2006, 02:08
C seems pretty good.

B, D and E are out of scope.

A talks about cost of oil only.
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17 Feb 2006, 03:53
Only C validates the claim.

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Technological improvements and reduced equipment costs [#permalink]

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10 Jul 2013, 04:19
Technological improvements and reduced equipment costs have made converting solar energy directly into electricity far more cost-efficient in the last decade. However, the threshold of economic viability for solar power (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants) is unchanged at thirty-five dollars.
Which of the following, if true, does most to help explain why the increased cost-efficiency of solar power has not decreased its threshold of economic viability?
(A) The cost of oil has fallen dramatically.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment.
(C) Technological changes have increased the efficiency of oil-fired power plants.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable.

Kudos [?]: 56 [0], given: 24

Joined: 06 May 2013
Posts: 97

Kudos [?]: 56 [0], given: 24

Location: Malawi
Concentration: Marketing, Technology
GMAT 1: 760 Q50 V42
GMAT 2: 730 Q49 V40
GPA: 3
WE: Consulting (Non-Profit and Government)
Re: Technological improvements and reduced equipment costs [#permalink]

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10 Jul 2013, 05:00
I know that the crux of the solution is to eliminate one from A and C. But if we pick A as the right answer, we are assuming that the efficiency of Oil-Fired plants hasn't decreased and if we chose C as the right answer, we are assuming that the price of Oil either hasn't risen or doesn't affect the cost efficiency of Oil-Fired plants.
I am having loads of confusions like these I would be grateful if someone could clear this for me.

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Re: Technological improvements and reduced equipment costs have [#permalink]

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11 Jul 2013, 01:09
plumber250 wrote:
Hi Nikhil,

No - we're not assuming anything else when we see the answer.

Think about it in any business context - if you improve your efficiency, the thing that counteracts that is your competitor improving its. Meaning you get no where...

This logically works here, and makes C correct.

Does that make sense

Hey, thank you for the explanation. But I was actually wondering if you could explain to me why is A wrong? On what grounds do we consider A incorrect or is it just about picking which is more relevant from A and C?
At the same time, can you tell me where am I going wrong here? In my eyes, a decrease in Oil price would also keep the economic viability unchanged right?
Moreover, In C ain't we assuming that although efficiency of the plants has increased, the cost of raw materials or production is still the same? Doesn't this assumption deem the answer incorrect?

Kudos [?]: 56 [0], given: 24

Joined: 06 May 2013
Posts: 97

Kudos [?]: 56 [0], given: 24

Location: Malawi
Concentration: Marketing, Technology
GMAT 1: 760 Q50 V42
GMAT 2: 730 Q49 V40
GPA: 3
WE: Consulting (Non-Profit and Government)
Re: Technological improvements and reduced equipment costs have [#permalink]

### Show Tags

11 Jul 2013, 05:08
VeritasPrepKarishma wrote:
nikhil.jones.s wrote:
plumber250 wrote:
Hi Nikhil,

No - we're not assuming anything else when we see the answer.

Think about it in any business context - if you improve your efficiency, the thing that counteracts that is your competitor improving its. Meaning you get no where...

This logically works here, and makes C correct.

Does that make sense

Hey, thank you for the explanation. But I was actually wondering if you could explain to me why is A wrong? On what grounds do we consider A incorrect or is it just about picking which is more relevant from A and C?
At the same time, can you tell me where am I going wrong here? In my eyes, a decrease in Oil price would also keep the economic viability unchanged right?
Moreover, In C ain't we assuming that although efficiency of the plants has increased, the cost of raw materials or production is still the same? Doesn't this assumption deem the answer incorrect?

No, it is not about picking the more relevant option. A is incorrect. Here is the explanation as I gave on another thread of this question:

It is a good tricky CR question. People with a quantitative bent of mind would love it, I am sure.
Let me put some numbers here to make it clearer. You need the numbers to understand that a paradox exists. Once you do understand that, resolving it is very simple.

Sunlight is free. Infra needed to convert it to electricity is expensive. Say for every one unit of electricity, you need to spend \$50 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. Say for every one unit of electricity, you need to spend \$40 in an oil fired power plant. Say, the split here is \$25 + \$15 (\$25 is the cost of oil used and \$15 is cost of infra for a unit of electricity).

Oil based electricity is cheaper. If the cost of oil rises by \$10 to \$35, solar power will become viable.
This \$35 = the threshold of economic viability for solar power = the price per barrel to which oil would have to rise (mind you, this isn't the actual price of oil)

What happens if you need to spend only \$45 in a solar power plant for a unit of electricity? Would you expect 'the threshold of economic viability for solar power' to go to 30? Yes! Now, for solar viability, 'cost of oil + cost of infra in oil power plant' should be only \$45. 'Cost of infra in oil power plant' = 15 so we need the oil to go up to \$30 only. That will make solar power plants viable. So the threshold of economic viability should decrease.

But the threshold of economic viability for solar power is still \$35! It doesn't decrease. That is the paradox! How do you resolve it? By saying that 'Cost of infra in oil power plant' has also gone down by \$5 and is only \$10 now.

This is what the scene is like now:

Sunlight is free. Infra needed to convert it to electricity is expensive. For every one unit of electricity, you need to spend \$45 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. For every one unit of electricity, you need to spend \$35 in an oil fired power plant. The split now is \$25 + \$10 (\$25 is the cost of oil used and \$10 is cost of infra for a unit of electricity).

You still need the oil price to go up to \$35 so that cost of electricity generation in oil power plant is also \$45. So you explained the paradox by saying that "Technological changes have increased the efficiency of oil-fired power plants." So, option (C) is correct.

If you think about it now, the actual price of the oil has nothing to do with 'the threshold of economic viability for solar power'. This threshold is \$35 so you need the oil to go up to \$35. Whether the actual price of oil is \$10 or \$15 or \$20, it doesn't matter. It still needs to go up to \$35 for solar viability. So option (A) is incorrect.

Wow! I wish i could give more than one kudos to this answer. Thank you . I had forgotten the fact that the economic viability remains constant.

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Re: Technological improvements and reduced equipment costs have [#permalink]

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08 Jun 2015, 03:23
VeritasPrepKarishma wrote:
nikhil.jones.s wrote:
plumber250 wrote:
Hi Nikhil,

No - we're not assuming anything else when we see the answer.

Think about it in any business context - if you improve your efficiency, the thing that counteracts that is your competitor improving its. Meaning you get no where...

This logically works here, and makes C correct.

Does that make sense

Hey, thank you for the explanation. But I was actually wondering if you could explain to me why is A wrong? On what grounds do we consider A incorrect or is it just about picking which is more relevant from A and C?
At the same time, can you tell me where am I going wrong here? In my eyes, a decrease in Oil price would also keep the economic viability unchanged right?
Moreover, In C ain't we assuming that although efficiency of the plants has increased, the cost of raw materials or production is still the same? Doesn't this assumption deem the answer incorrect?

No, it is not about picking the more relevant option. A is incorrect. Here is the explanation as I gave on another thread of this question:

It is a good tricky CR question. People with a quantitative bent of mind would love it, I am sure.
Let me put some numbers here to make it clearer. You need the numbers to understand that a paradox exists. Once you do understand that, resolving it is very simple.

Sunlight is free. Infra needed to convert it to electricity is expensive. Say for every one unit of electricity, you need to spend \$50 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. Say for every one unit of electricity, you need to spend \$40 in an oil fired power plant. Say, the split here is \$25 + \$15 (\$25 is the cost of oil used and \$15 is cost of infra for a unit of electricity).

Oil based electricity is cheaper. If the cost of oil rises by \$10 to \$35, solar power will become viable.
This \$35 = the threshold of economic viability for solar power = the price per barrel to which oil would have to rise (mind you, this isn't the actual price of oil)

What happens if you need to spend only \$45 in a solar power plant for a unit of electricity? Would you expect 'the threshold of economic viability for solar power' to go to 30? Yes! Now, for solar viability, 'cost of oil + cost of infra in oil power plant' should be only \$45. 'Cost of infra in oil power plant' = 15 so we need the oil to go up to \$30 only. That will make solar power plants viable. So the threshold of economic viability should decrease.

But the threshold of economic viability for solar power is still \$35! It doesn't decrease. That is the paradox! How do you resolve it? By saying that 'Cost of infra in oil power plant' has also gone down by \$5 and is only \$10 now.

This is what the scene is like now:

Sunlight is free. Infra needed to convert it to electricity is expensive. For every one unit of electricity, you need to spend \$45 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. For every one unit of electricity, you need to spend \$35 in an oil fired power plant. The split now is \$25 + \$10 (\$25 is the cost of oil used and \$10 is cost of infra for a unit of electricity).

You still need the oil price to go up to \$35 so that cost of electricity generation in oil power plant is also \$45. So you explained the paradox by saying that "Technological changes have increased the efficiency of oil-fired power plants." So, option (C) is correct.

If you think about it now, the actual price of the oil has nothing to do with 'the threshold of economic viability for solar power'. This threshold is \$35 so you need the oil to go up to \$35. Whether the actual price of oil is \$10 or \$15 or \$20, it doesn't matter. It still needs to go up to \$35 for solar viability. So option (A) is incorrect.

Thank you Karishma. At first I could not make it out, but I see it now. your explanation is splendid!

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Re: Technological improvements and reduced equipment costs have [#permalink]

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22 Aug 2016, 18:12
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.

Kudos [?]: 270 [0], given: 0

Re: Technological improvements and reduced equipment costs have   [#permalink] 22 Aug 2016, 18:12
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